Aareal Bank Group's robust business development continued into the second quarter of the current year. Against the background of a difficult market environment, the Group once again achieved a satisfactory result, therefore remaining successfully on track. Group profit before taxes improved to 25 million in the second quarter of 2009, after 17 million in the first quarter (Q2 2008: 48 million).
Both segments Structured Property Financing and Consulting/Services once again posted positive quarterly results, in spite of the dramatic slump affecting the global economy and the continuing challenges on the financial markets. Aareal Bank Group is therefore one of the few banks, in Germany and abroad, to have achieved a positive result in all quarters since the outbreak of the financial markets crisis two years ago.
"Aareal Bank Group remained on track in a difficult environment", said Dr Wolf Schumacher, Chairman of the Management Board. "Thanks to its conservative business policy and its robust client business, the bank continues to generate solid results. We are still in a good position to manage the manifold burdens and difficulties posed by the crisis affecting financial markets and the sharp recession. Once again, we have proven that our business model based on two columns is sustainable, consistent, and viable. We continue to control our risk exposure and costs. Our business is profitable enough to also absorb the costs for the silent participation and the guarantee facilities extended by SoFFin."
Structured Property Financing: sustainable business policy bears fruit
Aareal Bank's Structured Property Financing segment once again posted a positive result, in spite of a significant deterioration in its market environment. At 18 million, (Q2 2008: 37 million), the segment's operating profit was slightly higher than in the first quarter of 2009 (16 million).
Aareal Bank continued to adhere to its strict and selective new business policy that focuses on quality and return. New business amounted to 1.7 billion in the first six months of 2009. The bank continued to concentrate predominantly on its existing client base, and on active financing projects.
Net interest income in the Structured Property Financing segment amounted to 101 million in the quarter under review, compared to 102 million in the first quarter of 2009, and 95 million in the second quarter of 2008. The year-on-year increase is largely due to the higher margins achieved in the lending business. Aareal Bank consistently exploited the favorable capital market environment during the first half of the year to place issues over and above its bond guaranteed by the German Financial Markets Stabilisation Fund (SoFFin): placements focused on Pfandbriefe, but also included medium-term senior unsecured bonds. The liquidity generated through these issues provides the bank with ample funding for its new business budgeted for the second half of the year. Given the extremely low interest rates prevailing during the first half of 2009, the excess liquidity had a slightly negative effect on net interest income.
Thus far, Aareal Bank has coped well with the consequences of the worst recession in recent decades. Even though at 42 million (Q2 2008: 20 million), allowance for credit losses in the second quarter of 2009 was higher than in the same period of the previous year, it remained at a manageable level. The increase over the previous quarter (Q1 2009: 37 million) was in line with the normal fluctuation range. Aareal Bank affirmed its forecast regarding allowance for credit losses for the full year, and expects a figure at the upper end of the projected target corridor of 90 million to 150 million for 2009. Given the prevailing market environment, it is however impossible to fully exclude unexpected losses.
"Even though Aareal Bank has not been spared from the effects of the recession, we consider the moderate increase in allowance for credit losses as renewed evidence of the high quality of our financing portfolio. Mor